2025 Key Financial Data

Happy New Year!

We start the year providing you with key planning updates to the 2025 U.S. federal tax rules.  However, there could be major changes, and the odds look positive on this happening based on the newly elected administrations repeated focus on prioritizing tax legislation (plus many expiring tax laws).  If this does happen, we believe most changes in tax law would likely take place in 2026, but time will tell.  For now, we will focus on the main tax changes currently in place for 2025.

 Federal Tax Brackets - Due to inflation, these are slightly wider than prior fiscal year:

Long Term Capital Gains and Qualified Dividends – These do not change but the income threshold to qualify has gone up.   

• 0% Rate – Taxable income up to $96,700 for joint filers, $64,750 for household heads and $48,350 for singles
• 15% Rate – Taxable income between the 0% and 20% breakpoints
• 20% Rate – Taxable income at $600,051 for joint filers, $566,701 for household heads and $533,401 for single filers

Net Investment Income Tax (NIIT) – 3.8% tax on lesser of NIIT or excess of MAGI over: 

• Married filing Jointly - $250,000
• Single - $200,000
• Married filing Separately - $125,000

 Standard Deductions – These rise slightly. 

• Joint Filers - $30,000 (plus $1,600 if each spouse 65 or older)
• Single Filers - $15,000 (plus $2,000 if 65 or older)
• Heads of Household - $22,500 (plus $2,000 if 65 or older) 

Qualified Business Income – The ability for eligible pass through income (self-employed, S corps & LLC owners) to deduct 20% of their qualified business income remains subject to limitations for joint filers with taxable incomes of more than $394,600 and $197,300 for all other filers. 

Social Security Wage Base – Increases to $176,100.  The SS tax on employers and employees remains at 6.2% while both still paying 1.45% Medicare tax on all compensation (no cap).  Individual earners will pay an additional 0.9% surtax on wage and self-employment income over $200,000 for single filers and $250,000 for couples.  This surtax does not hit employers. 

Beneficiary IRAs inherited after 2019 – After much confusion to the 10-year “clean out” rule, RMDs must be taken in 2025 with certain exemptions.  If the new IRA owner did not take out RMDS in prior years, the beneficiary will not be penalized, nor must they make up for missed distributions.  Note that Bene ROTH IRAs inherited after 2019 are subject to the 10 year clean out rule but need not take annual RMDs over the 10 years.   

IRA Qualified Charitable Distribution (QCD) Cap - $108,000.  Those 70.5 or older can transfer up to this max from their traditional IRAs directly to charity.  These can count as part of your annual RMD but are not included in your taxable income. 

Lifetime Estate and Gift Tax Exemption – Increases to $13,990,000 per recipient.  The lifetime gift/estate tax exemption is projected to be reduced to ~$7 million in 2026 if current laws sunset.  This will be key to monitor throughout the year. 

Annual Gift Tax Exclusion - $19,000 per doner.  If giving with your spouse, it is possible to give $38,000 to a child, grandchild, or any person without having to file gift tax return or use the lifetime estate and gift tax exemption. 

Key Dollar Limits – Workplace Retirement Plans and IRAs with NEW changes to the catch-up provisions for those age 60-63. 

• 401k max salary deferral - $23,500 (Catch up = if 50 or older, $7,500 additional.  NEW - If 60-63, $11,250 more).
• Annual compensation used to determine plan contributions max - $350,000
• Defined Contribution Plans Max Limit - $70,000
• Defined Benefits Plan Max Limit - $280,000
• Traditional and Roth IRA max - $7,000 remains plus $1,000 additional if age 50 or older).  AGI phase out limits increase slightly for ROTH IRA contribution eligibility and Traditional IRA deductibility.
• SIMPLE IRA max salary deferral - $16,500 plus $3,500 if 50 or older.  NEW – If 60-63, catch up max is $5,250.
• Health Savings Accounts max contribution – $4,300 for self-only coverage and $8,550 for family coverage if eligible (high deductible plan = $1650 deductible for self-only or $3,300 deductible for family plus out of pocket costs cannot exceed $8,300 for individual and $16,600 for family). 

Complexity in our federal tax code continues and 2025 certainly looks to be a tumultuous tax planning year for most with Trump’s return to the White House, Republican control of both houses, lots of expiring tax provisions and very high expectations for a new tax legislative package.  Our goal will be to keep you updated on these potential changes and how it affects you and your family’s overall plan. 

Reminder that this is not tax advice and to always check with your tax professionals before acting.  As always, please do not hesitate to contact us with any questions or concerns.  

Cheers to a wonderful and blessed New Year!

WILLIAM R. HESMER, JR., CFP®,  AIF®

Principal

whesmer@oh-wp.com

Oak Harbor Wealth Partners, LLC (OHWP) is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Oak Harbor including our investment strategies, fees and objectives can be found in our ADV Part 2, which is available upon request.

The information contained within this email has been obtained from sources considered reliable, but we do not guarantee the foregoing material is accurate or complete.  This material is not financial advice or an offer to sell any product and is not a recommendation to buy or sell any particular security. The opinions expressed are those of the Oak Harbor Wealth Partners’ Management Investment Team. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass.